Pay as you go car insurance, also known as pay as you drive, is where premiums are based on the actual distance you drive. The insurers allow you to pay less for your insurance, as they recognise the chance of you having an accident is lower, as you're on the road less.
Unlike traditional policies with fixed premiums, this model adjusts costs in line with your driving habits. Because your "risk" is lower, so are your premiums.
How does pay as you go car insurance work?
It doesn't necessarily mean you pay "as you drive" – you can still pay your premium annually. But insurers will calculate your premiums based on your vehicle's estimated and actual usage. There are a few ways they do this:
Odometer reading
When you're getting a quote, you provide your odometer reading. Then you select how many kilometres you want to pay for — for example, 3,000km per year. You pay and you're ready to hit the road. If your odometer starts to near this limit but your policy term is not yet expired (meaning you haven't hit 12 months yet), you contact your insurer to top it up. The more kilometres you add, the more you'll pay.
Low kilometres options
Certain policies allow drivers to pre-select a kilometres cap, such as 5,000km or 10,000k, based on anticipated usage. You end up with a policy that's the same as regular comprehensive car insurance, however because you've selected your expected kilometres travelled in a year to be lower, you'll pay less in premiums.
Use of a tracker
Some insurers install telematics devices or use mobile apps to monitor the kilometres you're driving in real-time. This allows the insurer to charge you on a per kilometre basis as they'll know how many kilometres you're travelling. It can be a cost effective solution but, unsurprisingly, some get the ick on this because it feels like an invasion of privacy.
Is pay as you drive car insurance the same as comprehensive car insurance?
Yes, the benefits you receive and the coverage you're eligible for are the same as a standard policy. The difference is the way you track your kilometres and pay the insurer.
If you record your odometer reading and are required to 'top up' if you go over the amount of kilometres you've bought — that's a pay as you drive policy. Similarly, if you install a tracking device so the insurer can record your kilometres travelled and charge you accordingly — that's a pay as you drive policy.
Pay as you drive options are only available with comprehensive policies.
What's covered under pay as you drive car insurance?
Coverage typically mirrors that of comprehensive policies, including:
Accidental damage: Repairs for damages from collisions or other accidents.
Theft and vandalism: Protection against vehicle theft or malicious damage.
Fire damage: Coverage for damages resulting from fire.
It's essential to review individual policies, as coverage details and limits can vary between insurers.
Is pay as you drive car insurance good for seniors?
For seniors who often drive less frequently, pay as you drive insurance can be worth considering. By aligning premiums with actual usage, it offers potential cost savings.
However, it's worth noting that many popular car insurance providers offer coverage options for those who drive an average of 5,000 kilometres per year. If you're expecting to drive around this amount or less, then it's worth considering these providers in your car insurance comparison. While pay as you drive options can provide a cheaper option, this doesn't immediately make them the cheapest or the best for your needs.
Pros and cons of pay as you drive car insurance
Pros
Cost savings: Potentially lower premiums for those who drive less.
Personalised coverage: Policies tailored to individual driving habits.
Incentive to drive less: Potential to reduce driving, benefiting the environment and personal health.
Cons
Kilometres monitoring: Requires tracking of driving distance, which some may find intrusive.
Potential extra costs: Exceeding agreed mileage can lead to additional charges.
Limited availability: Not all insurers offer pay as you drive options.
Compare pay as you go car insurance options
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"A pay as you drive policy can be great for those who are driving less than 15,000km per year. However, it's worth knowing that a lot of regular insurers charge a lower premium when you drive less kilometres. Compare a few options from pay as you drive providers and normal providers to be sure that you're getting the best deal."
Traditional car insurance involves fixed premiums based on projected usage that typically exceeds 15,000km, while pay as you drive insurance adjusts costs based on actual kilometres travelled, benefiting those who drive less.
Exceeding the predetermined mileage may result in additional charges or a reassessment of your premium. It's crucial to understand the terms of your policy to avoid unexpected costs. In most cases, if you think you're going to exceed your agreed mileage, you can pay to top it up.
Yes, many insurers allow policyholders to switch between pay as you drive and traditional policies. If you anticipate an increase in your driving frequency, discuss options with your insurer to ensure continuous and appropriate coverage.
Monitoring methods differ by insurer. Some may require periodic odometer readings, while others utilise telematics devices or mobile apps to track kilometres in real-time.
Peta Taylor is a publisher at Finder, working across all of insurance. She's been analysing product disclosure statements and publishing articles for over 2 years. Peta is passionate about demystifying complex insurance products to help users make well educated decisions with confidence. Peta is part of Finder's insurance awards team and works alongside editorial and insights experts to bring users the best insurance products every year. See full bio
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